The Seed Enterprise Investment Scheme or SEIS for short, the son of the Enterprise Investment Scheme, provides POWERFUL tax incentives to investors to back start-ups. (Watch this excellent video for a quick understanding.) Investors paying the top rate of tax can claim up to 78% of their SEIS investment against tax.
- Investors receive 50% tax relief in the tax year the investment is made, regardless of their marginal rate. In other words, you can write off HALF your investment against tax, whatever rate you pay tax at.
- In the 2012-13 tax year, tax payers can roll a chargeable gain on the disposal of assets in the tax year into shares qualifying for SEIS income tax relief, with a full capital gains tax exemption. In other words you get up to a further 28% off your investment.
- Further relief is available should the business cease to trade whereby the cost of investment is reduced to nil in the cases where capital gains tax has been reinvested.Â In that particular case the downside isÂ therefore totally eliminated.
- For inheritance tax purposes investment is subject to business property relief after two yearsÂ and thus relieved totally from inheritance tax.
- Gains on the sale of the shares after the first three years will be totally free of capital gains tax.
The rules state:
- SEIS investors can invest Â£100,000 in a single tax year which can be spread over a number of companies.
- SEIS qualifying companies can raise no more than Â£150,000 in total via SEIS investment.
- Investors cannot control the company receiving their capital, nor can they have more than 30% of the equity of the company in which they invest.
- SEIS companies must be UK companies and have a permanent establishment in the UK; they must have fewer than 25 employees, and,Â if the company is the parent company of a group, that figure applies to the whole group.
- SEIS companies cannot have been trading for more than two years; their assets must be less than Â£200,000; and they have to trade in an approved sector â€“ generally not in finance or investment.
Doug Richard, a former â€œDragonâ€ from the BBC TV showÂ Dragonsâ€™ DenÂ and founder of School For Startups says SEIS isÂ â€œpotentially one of the most extraordinary incentives ever createdâ€.